Economics for Business Essay Sample UAE: NoorRide Mobile Car Care

For information and reference only – not to be submitted as your own work.

This extract shows how a first-year scenario essay can test an owner’s economic claims one by one. It is based on the NoorRide Mobile Car Care microeconomic analysis brief, and the approach is explained step by step in our guide on how to write a microeconomics scenario essay. It is an extract of roughly the first half of the answer, not a full submission.

Planning table

The brief weights application of concepts at 40%, critical thinking at 30%, examples, diagrams and wider reading at 20%, and presentation and referencing at 10%. Each sub-section below therefore pairs a concept with a judgement.

Introduction

NoorRide is a mobile car-care business in Dubai whose owner explains several business decisions through economic reasoning. This essay tests each belief against standard microeconomic theory from demand and supply, costs and production, and market structure. A claim is judged accurate only when the owner’s conclusion follows from the evidence he cites. Where it does not, the essay shows which assumption fails and what a better reading would be.

Opportunity cost of the AED 250,000 investment

The owner treats the AED 250,000 as a choice between a van, a booking system, advertising and detailing equipment. Opportunity cost is the value of the next best alternative given up, not the sum of all alternatives (Mankiw, 2021). If the firm buys the van, the cost is the single best use of the money that is forgone, for example the booking system, and not all three together.

The owner’s framing is therefore partly accurate. He is right that every option has a cost beyond its price, but wrong if he counts all rejected options as the cost. A sound decision compares the expected marginal benefit of each option with that single best forgone alternative (Sloman, Garratt, Guest and Jones, 2019).

Price elasticity of demand for the standard wash

The standard wash price fell from AED 95 to AED 85, and weekly washes rose from 420 to 480. The midpoint method gives the percentage change in quantity as 60 / 450 = 13.3%, and the percentage change in price as -10 / 90 = -11.1%. Price elasticity of demand is therefore 13.3 / -11.1, or about -1.2.

Because the absolute value exceeds 1, demand is price elastic over this range, and the owner’s conclusion is accurate. The revenue figures confirm it: weekly revenue rose from AED 39,900 (95 × 420) to AED 40,800 (85 × 480). Two cautions apply. First, one price change does not prove elasticity at every price. Second, other factors may have moved at the same time, so the result holds only if everything else stayed constant (Sloman et al., 2019).

Is ceramic protection a luxury good?

The owner notes that higher-income customers buy more ceramic protection and calls it a luxury good. That evidence shows only that it is a normal good, meaning demand rises with income. A luxury good has an income elasticity of demand above 1, so demand grows proportionately faster than income (Mankiw, 2021).

Suppose, as an illustrative figure, that customer incomes rise by 10% and ceramic bookings rise by 18%. Income elasticity would be 1.8, and the label would be justified. If bookings rose by only 6%, elasticity would be 0.6, and ceramic protection would be a normal necessity. The claim is therefore unproven on the evidence given.

Demand shifters and the law of demand

The owner lists weather, fuel prices, incomes, competitor prices, convenience and preferences as influences on demand. These are accurate, but they must be separated from price. A change in price causes a movement along the demand curve, whereas the other factors shift the whole curve (Sloman et al., 2019). Rainy weeks may shift the curve left, and a rival’s price cut would shift it left while a rise in rival prices would shift it right.

The law of demand states that quantity demanded rises as price falls, other things equal. The owner’s expectation is accurate in general, but the qualifier matters. If a price cut coincided with a competitor’s promotion, observed sales would not reflect the price effect alone.

Market structure: price taker or price maker?

The owner assumes NoorRide is a price taker among many branded competitors. Price taking belongs to perfect competition, where products are identical and no single seller can influence price. Many sellers with differentiated brands describe monopolistic competition, in which each firm faces a downward-sloping demand curve and has some pricing power (Chamberlin, 1933).

The evidence supports this reading. NoorRide changed its own price and sold more, which a true price taker could not do without losing all customers or gaining unlimited ones. The claim is inaccurate. Branding and convenience give limited market power, but easy entry keeps long-run profit close to normal, so the owner should still watch rivals closely (Baumol, Panzar and Willig, 1982).

Diminishing returns or diseconomies of scale?

Adding four workers to the same vans raised output at a falling rate. This is the law of diminishing marginal returns: when a variable input is added to fixed inputs, each extra unit eventually adds less output (Mankiw, 2021). The vans are the fixed input, so extra workers crowd the same equipment.

The owner reads this as diseconomies of scale, which is inaccurate. Diseconomies of scale concern long-run average cost rising when all inputs are increased, for example through coordination problems in a larger firm. The case describes a short-run change in one input, so diminishing returns is the correct term.

Economies of scale and scope

Expansion to Abu Dhabi could reduce average cost if purchasing, booking technology and branding are spread over more washes. These would be economies of scale, although they are not guaranteed, because travel time between emirates and management complexity could offset them.

Adding tyre and battery checks with the same staff, vans and customer base is different. It is an economy of scope, because producing several services together costs less than providing them separately (Panzar and Willig, 1981). The owner should keep the two ideas apart, since one concerns volume and the other concerns range.

Marginal analysis, consumer choice and the time frame

The owner applies marginal revenue against marginal cost for each booking, which is the correct profit-maximising rule: expand output while marginal revenue exceeds marginal cost. He then assumes that rising total revenue means rising profit. This is inaccurate. As an illustrative figure, if an extra booking adds AED 85 of revenue but AED 92 of cost, revenue rises while profit falls (Sloman et al., 2019).

Customers switching between services does not prove the equi-marginal principle either. That principle says a consumer is at the optimum when marginal utility per dirham is equal across goods, so switching shows a change in choice but not that this condition holds (Mankiw, 2021).

Finally, operating in two emirates does not place the firm in the long run. The long run is defined by whether all inputs can be varied, not by geography. Fixed leasing and technology contracts mean some inputs are still fixed, so NoorRide remains in the short run.

Conclusion

The owner’s reasoning is mixed. His elasticity calculation, use of marginal analysis and list of demand shifters are accurate, but his claims about luxury goods, price taking, diseconomies of scale, profit and the long run are not supported. NoorRide should confirm income elasticity with data, price with its limited market power in mind, and track marginal cost before adding bookings or staff.

If you want your own scenario essay planned and checked against your marking criteria, you can submit your assignment details or read about our economics assignment help in the UAE. For wider business modules, see our MBA assignment help page.

References

Baumol, W.J., Panzar, J.C. and Willig, R.D. (1982) Contestable markets and the theory of industry structure. San Diego: Harcourt Brace Jovanovich.

Chamberlin, E.H. (1933) The theory of monopolistic competition: a re-orientation of the theory of value. Cambridge, MA: Harvard University Press.

Mankiw, N.G. (2021) Principles of economics. 9th edn. Boston: Cengage Learning.

Panzar, J.C. and Willig, R.D. (1981) ‘Economies of scope’, American Economic Review, 71(2), pp. 268–272.

Sloman, J., Garratt, D., Guest, J. and Jones, E. (2019) Economics for business. 8th edn. Harlow: Pearson.